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Abenomics describes the plans of Japanese Prime Minister Shinzo Abe to revive growth in the world’s third largest economy, which is struggling to find traction under the impact of a strong yen and stubborn deflation.

Prices of televisions in Japan began rising last year. Photo: Bloomberg

Japan's economy strengthened last month as industrial production rose the most since 2011, retail sales climbed and consumer prices halted a six-month slide, bolstering Prime Minister Shinzo Abe's push to end a deflationary malaise.

Consumer prices excluding fresh food were unchanged from a year before as a weakening yen pushed utility costs up by the most in almost five years, the statistics bureau reported yesterday.

Industrial output advanced 2 per cent from April, exceeding the median estimate for a 0.2 per cent rise in a survey of economists. Retail sales gained 1.5 per cent.

The data offers Abe evidence that his reflationary strategy is paying off as he campaigns to strengthen his political position with a win in next month's upper house election. The figures may also ease pressure on Bank of Japan governor Haruhiko Kuroda to add monetary stimulus after a sell-off in stocks.

"The policies of the government and BOJ are working in terms of reflating the economy," said Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo. At the same time, "for Japan to recover from two decades of deflation, it will require a few years of good economic performance", Okubo said.

The Nikkei 225 Index jumped 3.5 per cent to close at 13,667.32 points yesterday. Japan's equities have slumped from a four-year high reached on May 22 amid concern that the United States Federal Reserve will pare its liquidity injections and that Abe is waiting for after the election to pursue structural reforms. The yen was little changed at 98.53 per US dollar yesterday.

A survey of 918 people published by the Nikkei newspaper this week found 55 per cent of respondents approved of Abe's economic policies, and 66 per cent supported the cabinet.

Some food retailers have started raising prices. McDonald's Japan this week started selling its most expensive hamburger, a summer item priced at 570 yen (HK$45).

Meanwhile, some companies are already expressing concern about rising prices. The Japan Iron and Steel Federation, with nine other industrial organisations, submitted a request to Trade and Industry Minister Toshimitsu Motegi for tax breaks and financial assistance to cushion the impact of higher utility bills pushed up by nuclear-plant shutdowns and a weaker currency.

Sentiment among Japan's largest manufacturers may turn positive for the first time since September 2011 in a Tankan survey due on Monday, according to the median forecast of 22 economists surveyed.

"We don't know yet if this will be a trend for inflation. It's too early to say Japan is seeing light at the tunnel for beating deflation," Kohei Okazaki, an economist at Nomura Securities, said. "The key is wage growth."

The fading effect of a large increase in television prices last year may have contributed to yesterday's figures, which also reflect a decline in energy prices last May, according to Okazaki.

This article appeared in the South China Morning Post print edition as Abe's reflation strategy paying off